Housing Bubble, 10 Overvalued Cities

• Redfin surveyed 49 cities to determine the most competitive housing markets in the US.
• Out-of-town buyers could afford almost 30% more than locals in Nashville and New York, Redfin found.
• Insider breaks down why skyrocketing housing prices are driving bubble fears.

Locals had almost 30% less to spend buying a house compared to out-of-towners in 10 US cities, a new study from Redfin indicated.

The real-estate brokerage listed the southern-migration hot spots Atlanta, Miami, and Nashville as some of the US’s most competitive housing markets, alongside New York and Philadelphia.

To determine the hottest real-estate markets, Redfin analyzed its users’ average maximum list-price filters. It found that out-of-towners had more to spend than locals in 42 of the 49 cities surveyed, and it cited the rise of working from home as one reason for the gap.

“Many American home buyers were able to widen their searches in 2021 as many employers made remote-work options permanent,” Redfin’s data journalist Dana Anderson wrote in the report. “Remote workers are now able to move somewhere more affordable than their hometown, so it stands to reason that out-of-towners frequently have bigger budgets than locals.”

Housing bubble

There could be a significant overlap between the surge in out-of-town buyers and the rising number of real-estate investors buying US homes. A separate Redfin report found that investors bought a record 18.4% of homes sold over the last quarter, up from 12.6% a year ago.

Atlanta appeared to be the city experiencing the most significant squeeze, with investors buying 32.7% of homes. There was also a 26.1% gap between locals’ and out-of-towners’ average budgets.

Sheharyar Bokhari, an economist at Redfin, said that soaring house prices were punishing locals in cities such as Atlanta; Charlotte, North Carolina; and Jacksonville, Florida.

“Record-high home prices are problematic for individual homebuyers,” he said in the Redfin investor-homebuyer report. 

He continued: “Investors are chasing rising prices because rental payments are also skyrocketing, incentivizing investors who plan to rent out the homes they buy. The supply shortage is also an advantage for landlords, as many people who can’t find a home to buy are forced to rent instead.”

“Investors buying up a record share of for-sale homes is one factor making this market difficult,” Bokhari added.

The combination of surging property prices and increased house flipping could be a sign of a developing housing bubble, said analysts such as Desmond Lachman, a senior fellow at the American Enterprise Institute. That bubble may pop if interest rates rise.

“As soon as the Fed starts raising interest rates in an aggressive way, there’s the real risk that it bursts the asset price bubbles and that could move us into a

recession

,” Lachman told Nikkei, a Japanese financial newspaper, in a recent interview.

UBS also sounded the alarm about a real-estate bubble in October, with two strategists saying that “a long, lean spell for cities’ housing markets looks more and more probable.”

Competitive markets

Nashville is now the most competitive housing market in the US, Redfin found, with the Tennessee city appealing to out-of-towners because there’s no state income tax. House prices have surged by just under 23% over the past year, pushing the gap between locals’ and migrants’ budgets to 28.5%.

“We’re seeing a lot of out-of-state transplants, mostly from states like California that have an income tax,” said Hope Geyer, a Redfin agent in Nashville. “People moving from the West Coast will pay way over asking price without batting an eye.”

“It’s really hard for locals to compete right now, and it can be devastating for first-time buyers who aren’t able to offset high prices by selling a home before they buy a new one,” she added.

Philadelphia and New York rounded out the top three, with out-of-towners willing to pay a staggering $1.2 million for a house in the latter city. Insider broke down the US’s 10 most competitive housing markets right now, sorted by the gap between locals’ and out-of-towners’ average budget.